Scott Lowe doesn't agree with some Microsoft investors who think that the company should pull the plug on the Surface, Xbox, and Bing. Do you think Microsoft should ditch these products?
The International Business Times recently reported that a “number of Microsoft investors told the new CEO and the company's board of directors that they should cancel endeavors like the Xbox One next-gen gaming console, search engine Bing, and the Surface tablet.”
The situation at hand
I believe that Microsoft has made some serious missteps in recent years that have resulted in the company now being in the position that it's in. However, under Ballmer’s leadership, Microsoft also made a number of great gains, most notably in the areas of Server, Hyper-V, and cloud computing.
Unfortunately, Microsoft's mistakes are pretty serious ones, and there are areas of the company that investors question — namely, the Xbox, Surface, and Bing. Even though Surface revenue more than doubled in the most recent quarter and interest seems to be on an uphill trajectory, the devices still receive a lukewarm reception. Investors likely believe that the efforts going into Surface should be devoted to more profitable ventures. After all, Office 365 and Azure are simply exploding in popularity on the enterprise front, so why not focus there?
Give up on the Xbox and Surface? Maybe
When looking at the Surface and Xbox, I see that both work well in the consumer space, although Surface also crosses the line and can be used as an enterprise device. Surface absolutely struggled initially, but as I mentioned earlier, interest in it is gaining. I think the device itself is actually quite nice. However, the operating system — Windows 8 and Windows 8.1 — leaves a lot to be desired. With a better operating system, Surface could be a hit.
There was an additional reason that Microsoft had to build the Surface. Its hardware partner ecosystem was (and still is) a mess. Race-to-the-bottom pricing left a bad taste in the mouths of consumers who were tired of buying what amounted to junk. At the same time, consumers began to see products like the iPad — pretty reasonably priced — skyrocket, thanks to a thriving software ecosystem and well-built hardware. The Surface was Microsoft’s answer to the market. It was a well-designed piece of hardware, but pricing was a bit high and, again, it was saddled with Windows 8. Today, the partner ecosystem is getting better around Windows devices, but I don’t think Microsoft will see real light at the end of the tunnel until Windows 9 hits the scene.
With regard to Surface specifically, it should continue to be developed if for no other reason than to keep a quality option in the market. The Surface should also serve to keep partners on notice that Microsoft will step in and take its own corrective action if its partners are unable to do so.
As for the Xbox, it’s certainly a consumer play, but as we move inexorably closer to the Internet of Things and as new home automation options come to play, the Xbox is a natural fit as the managing platform for this kind of activity. It’s a hub into the home. While it most likely wouldn't have an immediately negative impact on Microsoft, it could limit the company’s future opportunities with regard to the consumer.
It seems as if investors want Microsoft to focus solely on the enterprise, but the consumer front is also important, especially if the company wants to compete with Google and Apple. Today’s Bring Your Own Device (BYOD) trends can impact tomorrow’s enterprise decisions, and Microsoft can’t be left out of the equation. This makes the Xbox important as a strategic asset, and one that Microsoft needs to find ways to leverage further.
The verdict: Microsoft should keep both the Surface and the Xbox.
And then there’s Bing. What can I say about Bing that hasn’t already been said? It’s an okay search engine, but not a great one. I really want to like it, but every time I use it, I end up disappointed. I do like Bing’s image and video search features far more than Google’s, but given that traditional web search still dominates my needs, I always find myself going back to Google for those services.
Bing is definitely intended to be the anti-Google. It’s here that I think Microsoft may have to consider some tough options. Most importantly, if they keep Bing around, Microsoft needs to improve the results to be more actionable. However, I don’t see Bing going anywhere anytime soon, especially since the company embeds Bing in additional products.
What we all believe — me, analysts, and even investors — really doesn’t matter. What does matter is that Microsoft’s new CEO needs room to make the decisions that he feels are in the best interests of the company. More importantly, he needs to be afforded the opportunity to take a long view and not work to ridiculous quarter-to-quarter expectations.
Do you think Microsoft should pull the plug on the Surface, Xbox, and Bing? Share your thoughts in the discussion thread below.